Pessimism vs. Optimism in Finance

We were going to talk a little bit about pessimism. What do we mean about pessimism? Well, if you read blogs, if you read, you know, financial media, if you're on financial Twitter or TikTok or whatever, if you go to conferences, you will notice that the pessimists, the people who say things are going to go badly now or we're in for some rough times soon, sound smarter than the optimists. The pessimists have all kinds of great arguments about why things are going to be terrible in the future. And the optimists sound like Pollyanna. But the truth is the history of investing, and there's a book with this title, but the history of investing should be titled Triumph of the Optimists, because the optimists win in the long run, because there's a lot of people going to work every day trying to make the world a better place, trying to make their own lives better, and they are gradually improving the world around them. Right. We think, especially during political season, that the world is a terrible place and everything's worse than it used to be. But let's really consider for a minute how things used to be. Let's go back, let's just say, couple hundred years, right? A couple hundred years ago, the vast majority of people on this planet, including in the United States, lived in poverty. They spent most of their day just getting enough money or food to eat, right? When's the last time we worried about having enough food to eat? I don't care how unsuccessful you are financially, you're probably not worried about food. You can feed yourself just fine. But that's the way it was 200 years ago, right? A couple hundred years ago, before the invention of, really the railroad, the fastest. Well, I guess the telegraph, right? The fastest the information or anybody ever traveled for millennia was the speed of a horse, right? That's it. You know, ships went even slower than horses. If you need to send something across the world or you need to travel across the world, you know, it might be a different group of people that arrived there when you were done. It wasn't just a matter of taking years to get there. Half of you died on the way. And that's just the way the world was. Things are dramatically better today. And in most ways, things are dramatically better than even they were 10 years ago or 20 years ago or 30 years ago. The world is improving, and being an optimist when it comes to investing usually leads to better returns, to better performance, especially in the long run. Yes, crazy things can happen in the short run, right? Stock market crashes happen, and sometimes one particular sector of the market is overbidden, right? Sometimes even bonds have a lousy year like 2022. But the truth is, most of the time, your investments increase in value. Most of the time, companies pay their dividends and bonds pay their interest and renters pay their rent. And it works out pretty well to be an investor. So don't put too much account into the pessimists. They're usually wrong, especially in the long run. And the history of the world and the history of the markets is one continual example of just how many times they've been wrong. We forget they're wrong, right? These pessimists, these perma bears, they're always saying pessimistic things, and eventually it seems like they're right because something bad happens, right? But that bad thing goes away in a year or two, and they're still wrong in the long run. So don't put too much emphasis into what you hear pessimists say on social media or in. In the, you know, regular media or in your personal life, okay? Try to be an optimist throughout your life and you'll find a lot more success in your finances.

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.